A Lesson In Mobile Banking Economics

A Wall Street Journal article titled Mobile’s Rise Poses a Riddle for Banks is so off the mark, I simply can’t let it slide. According to the article:

“A waitress from Queens, NY, Ethel Bueno keeps her phone close at all times and frequently logs on to her bank account to check her balance. But for bigger and more-complex transactions, which often require fees, Ms. Bueno prefers to visit a bank teller in person. That means her digital devotion to the bank doesn’t actually generate much revenue, a puzzle firms across the industry are still trying to solve. According to a new study by Bain, mobile [bank] interactions are now 35% of the total, more than any other type. A 2012 Fiserv report found that digital transactions cost on average 17 cents each, compared with 85 cents for an ATM transaction, and $4 for an interaction with a bank teller.” (italics added)

My take: Blind faith in the contention–and numbers–thrown around in this article is sheer stupidity.


If you read the full WSJ article, you’ll find that the two bank execs quoted are anything but puzzled about mobile banking. So how the author of the article concludes that mobile banking is a “puzzle” that banks “are trying to solve” is beyond me. Did anybody mention to the WSJ that the transactions being conducted on a mobile device for free were actually free when they done in a branch or ATM?

If anything, it’s a gift on a silver platter. Who cares if it doesn’t generate revenue? The cost savings that are implied by the channel transaction costs should more than compensate for the fact that the mobile transactions don’t generate revenue.


Assume for a moment that there’s a bank whose customers conduct 1,000,000 transactions per year. The WSJ article didn’t include estimates for call center transaction costs, so let’s assume they’re somewhere between the ATM and branch, at $2.50 per transaction.

Now assume the following transaction allocation, first before the implementation of digital banking (online and mobile) banking, and then now, with 35% of the transaction volume going to mobile (and for argument’s sake, another 15% coming from online transactions).

    Before After
  Per transaction cost Transaction allocation Channel costs Transaction allocation Channel costs
Digital $         0.17 0% $                  – 50% $        85,000
ATM $         0.85 10% $        85,000 8% $        68,000
Call center $         2.50 25% $      625,000 10% $      250,000
Branch $         4.00 65% $  2,600,000 32% $  1,280,000
TOTAL     $  3,310,000   $  1,683,000

In the Before scenario, based on the assumed transaction allocation, total costs are ~$3.3 million. In the After scenario, with digital transactions at 50% of all transactions (35% for mobile, 15% for online), the increased allocation had to come from somewhere, so ATM and call center percentages declined slightly. And with the impending death of branches (hey, that’s what all of you think, not me), the % of transactions going to branches declines from 65% to 32%.

Overall, the cost reduction from this jump in mobile transactions–based on the lower cost per transaction–should produce a 50% reduction in transaction costs. Good luck finding a bank whose has reduced their operating costs by 50% because of this explosion in mobile banking transactions.


But clearly, what’s happened, is that digital transactions have not fully displaced transactions in other channels, but have added to the overall transaction volume.

Now here’s what’s important, and what way too many bankers either can’t understand, or refuse to understand: It doesn’t matter how much less expensive digital transactions are than transactions in other channels if the digital transactions don’t displace those other channel transactions.

If digital transactions are additive, then even at just $0.17 per transaction, every digital transaction adds to the bank’s cost structure and is a drag on profitability. Conclusion: Per transaction costs by channel are meaningless if channel migration doesn’t occur.


There’s another problem with those channel transaction costs: They’re averages of all the transactions that occur in the channel. Some branch transactions will cost much less than $4 per transaction, and some will cost more.

If the branch (as well as call center and ATM) channel transactions that are displaced by digital transactions are the lower cost transactions, then the potential cost savings is even further reduced.


From a cost perspective, there are two key elements in mobile banking economics: 1) How many transactions are displaced from higher cost transactions, and 2) How many new transactions are added?

If the migration from higher cost channels doesn’t occur, of if the migration is from online to mobile (which is entirely possible), then there’s little economic benefit. If many new transactions are added, then even with a low cost per transaction, overall costs go up.

According to the Bain study, mobile transactions now account for 35% of all transactions. In other words, a minority of consumers (what, ~25%?)–who presumably are not mobile-only customers–are now accounting for a hugely disproportionate percentage of all banking transactions. That tells me that this minority must be adding a huge number of new transactions to the mix. Which implies that mobile banking isn’t saving banks anything, even with the huge disparity in per transaction costs.


The riddle (i.e, the challenge) that banks face–if there is one–has nothing to do with mobile banking. It has to do with the other channels. What can banks do to drive transactions out of those channels and into the lower costs channels?


The Real Must-Have Job Skills For 2013

A Wall Street Journal article titled Must-Have Job Skills in 2013 asserts:

“For employees who want to get ahead, basic competency won’t be enough. To win a promotion there are four must-have job skills: 1) Clear communications; 2) Personal branding; 3) Flexibility; and 4) Productivity improvement.”

My take: Total and utter nonsense.

Let’s use me as an example to prove the fallacy of the article.

1. Clear communications. Perhaps this is a bit bombastic and egotistical (but really, what did you expect from me?), but I’m the best communicator in my company, and our job is communication. I’m the best writer among the analyst staff, and probably the best presenter.

2. Personal branding. I’m the most quoted analyst in my company, and my blog was voted 2nd best banking blog. That’s pretty good personal branding in my book. Happy to take on any of my colleagues who think their personal brand is stronger.

3. Flexibility. Tough attribute to measure quantitatively. Willing to give myself just an average grade on this.

4. Productivity improvement. The WSJ article says “In 2013, workers should find new ways to increase productivity.” No problem here. Two years running now, I’ve published the most reports of any analyst at my firm, blowing away the goal.


Having made these pompous claims about my skills, let me tell you this: There is no one — and I mean NO ONE — in my company who is LESS LIKELY to get a promotion next year than I am.

It’s not like I just developed the above skills. I’d argue that I’ve have had them for years. Yet, the last time I got a promotion was — you sitting down? — 1999.

That’s right. Haven’t been promoted in 13 years. In fact, title-wise, I’ve been demoted. I used to be a “VP, Principal Analyst” and now I’m just a lowly Senior Analyst.

Not that I’m complaining, mind you. Ten times happier doing what I’m doing now than when I had the fancier title.


But the more important point is that the skills listed above are NOT what it takes to get a promotion. If you really want to get promoted next year, I’ll tell you what to do. It’s quite simple. If you do the following things in 2013, I guarantee you that you’ll get promoted (will buy you lunch at a nice restaurant in Boston, but you will have to PROVE that you did these things):

1. Make the company money. There are other things on the list, but if you do none of the rest, just doing this is bound to get you promoted.  Here’s what the social media gurus morons don’t get: Your personal brand is worthless if the company you work for can’t capitalize on it. It’s great for your ego that your community knows who you are because you tweet links to 500 articles every day, but your employer couldn’t care less.

2. Do the dirty work. In every company, there are sticky issues, or problem areas, that don’t ever seem to get resolved or cleaned up. Do the stuff that nobody else is willing to take on, and you’re on your way to a promotion.

3. Drive other people’s productivity. The WSJ article is way off the mark. Companies promote people who are willing to take on the responsibility of dealing with headaches and issues that come with managing other people.  Improving your own productivity doesn’t win you promotions. What it does do — and this shouldn’t be downplayed or overlooked — is win you freedom. What I get from my personal branding, productivity, and communication ability is freedom. Freedom to (mostly) do what I want and how I want to do it (for the most part).  This is what too many Gen Yers don’t get. They think they’re entitled to this level of freedom because they’re the “future.” Buzz off, you inexperienced little nudniks. If John Houseman was still around, he’d tell you that “you have to EARN it.”

4. Earn the respect of your colleagues. Smart companies know that the number one reason why people leave a company is bad bosses. It’s not money, or anything else. It’s having a lousy boss (I speak from experience).  If you want that promotion, you stand a better chance if you’ve done the three things above AND if people like you (I’ve learned that the hard way, too).


Bottom line: I don’t know what the WSJ editors were thinking when they decided to publish that article. Not a particularly good piece.

Credit Unions: New Members, Boiled Lightly

Well, Bank Transfer Day has come and gone.

Actually, I doubt that it really has “gone” as I’m sure that credit unions will do everything under the sun to keep the glow of the Bank Transfer Day movement a-burning.

Ironically — and I don’t hear anybody else talking about this — credit unions might not have been the only financial institutions to have benefited from BTD. And I’m not referring to the “shedding of unprofitable customers” that some people talk about.

Anecdotally, I’ve talked to a few folks at mid-sized banks who have told me that they’ve seen pretty good growth in new customers over the past month or so.

But that’s not what this blog post is about. This one is about the Wall Street Journal.

I’m a big fan of the WSJ. Read it every day. Agree with the editorials far more often than I disagree with them. But when some press outlet screws up — whether I support it or not — regarding something related to the world of financial services, then I’m going to call them out over it.

And that’s what this blog post is about — calling the WSJ out regarding an article titled Credit Unions Poach Clients (you may need a subscription to access this article. Surprise, surprise, I have one).

Here’s are the issues I have with the article:

1. Credit unions did not poach clients. According to my handy (online) thesaurus, “poach” means infringe upon, trespass, or boil lightly. Sorry, but credit unions didn’t do anything of these things. I’m pretty sure that the new members that credit unions have signed up in the past month came over willingly. I also don’t think that credit unions went over to banks and “trespassed” in any way. And if you know of any credit unions that lightly boiled their new members, please — PLEASE — let me know.

2. Profitability of switchers is an unknown. The WSJ article claims that “people who gravitate to credit unions tend to be unprofitable for giant banks because of the small balances they keep on deposit…” Not so fast. Take a look at the report I did for BancVue. There are many credit unions — and community banks — who offer high-yield checking accounts (Rewards Checking) where the average balances are about 4x the size of free (no-interest) checking accounts, and whose profitability exceeds that of the free checking accounts. According to CUNA, 650k new accounts were opened at CUs leading up to BTD, with $4.5 billion in new deposits generated. That’s nearly $7k/account. Not exactly “small balances.”

3. CUs charge fees, too. The article says “banks try to recoup such costs [to maintain a checking account) by imposing overdraft fees and other charges.” While credit union members may — on average — pay less in fees than the average bank customer (let’s not get into the quantipulation inherent in that statistic), guess what WSJ? Credit unions charge an overdraft fee, too.

4. Banks are everywhere, man.  Johnny Cash shoulda done a song on this. The WSJ quotes a guy from NCUA (which it says is a trade group, which isn’t accurate according to @paulsworld) who says “many of the nation’s 7,200 credit unions are in rural areas where there is no other banking option.” I don’t think this is a supportable statement.

5. The housing bubble comment was a poor choice. The article states that “several large commercial credit unions…went bust after loading up on high-risk mortgages during the housing bubble.” True statement. But in comparison to the impact the housing bubble had on banks, calling out the impact on the credit union industry was pretty manipulative. 

C’mon WSJ: We expect a lot better from you.

p.s. If you want a copy of the report referenced above Financial High Coup: Why High-Yield Checking Accounts Trump Free Checking, contact BancVue.